Subprime Grinches

By ARLENE HOLT BAKER

Published: Dec 24, 2007

Turn on your television this holiday season and chances are the movie "It's A Wonderful Life" will be playing on some channel.

This classic film has come to embody that sense of community and caring for one's neighbors often referred to as the "holiday spirit."

You remember the plotline. The bad guy, Mr. Potter, played by Lionel Barrymore, schemes to extract rents from slum housing and take over the building and loan run by good guy George Bailey, played by Jimmy Stewart.

George's bank makes loans to families who otherwise wouldn't be able to get them - low-income families, families of color, people who, in his words, "do most of the working and paying and living and dying in this community." As far as we know, George doesn't sneak escalation clauses into his mortgages or base his business model on getting big fees for foreclosing on those families off screen. Still, he makes a living. He is not rich but he can care for his family.

Fast forward to Christmas 2007, when 2 million Americans are facing the very real possibility they will not be able to do even that because they took out mortgages on exploitative terms.

From January to November of this year Florida saw 36,393 foreclosure filings - more than 156 percent more than in 2006 and the fourth highest number in the nation During the same period in 2007 Florida ranked second in the nation in pre-foreclosure filings per capita with 34 filings per 1,000 households.

As bad guys go, Mr. Potter has nothing on the Grinches of this Christmas story. The largest banks in the world - financial giants like Citibank, Countrywide and Bank of America - built the misery of millions into their business plans. They financed the subprime lenders, service these mortgages and are now set to collect massive fees on the foreclosures they knew could result from the mortgages they backed.

After months of saying this isn't a serious problem, the Bush administration is now touting a plan that has banks offering interest rate relief to 12 percent of those subprime mortgage holders at risk of foreclosure.

Working people need more. The AFL-CIO and the NAACP have called on the banks and government to declare a foreclosure moratorium to give homeowners trapped in the subprime net a chance to get out, refinance and restructure.

A moratorium is a first step. Next the mortgage industry and government must create a structured program providing for the replacement of teaser rate loans - so-called 2 and 28 loans - with conventional 30-year mortgages at the teaser rate.

Servicers must renounce those agreements that reward mortgage companies for foreclosing on homes rather than encourage refinancing or other workout strategies. And servicers must commit to publicly reporting details about their subprime activity.

Finally, we need massive outreach under federal government auspices to subprime borrowers to let them know how they can keep their homes. These are the initial steps necessary to stabilize our housing markets, prevent cascading defaults and safeguard our economy.

Arlene Holt Baker is executive vice president of the 10 million member AFL-CIO.